Benchmarking the Economic Performance of Australian Urban Water Authorities

This report was produced for the Urban Water Research Association of Australia, a now discontinued research program.

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Report no. UWRAA 93

April 1995

Synopsis

This report comprises a description and evaluation of the techniques used to measure and compare the economic performance of six Australian urban water and sewerage authorities. Only summary results from this analysis is provided in this report. Detailed results are provided to each of the participating water services authorities on a confidential basis.

Performance is assessed for each of the three major functions of Australian water authorities; water, sewerage reticulation and sewage treatment. Their performance is compared to the 30 water companies and 10 sewerage companies in England and Wales for the year 1992/93. The performance of drainage services has not been analysed in this study because of the lack of international data.

Economic performance is measured using Data Envelopment Analysis (DEA). This analysis is complemented by a range of cost and technical performance indicators. DEA is regarded as the most comprehensive measure of economic efficiency. It can simultaneously model multiple inputs and outputs which results in a summary measure of performance. The results of the DEA modelling are also used to identify inefficiency caused by producing at the wrong level of output (scale inefficiency), using a more expensive combination of inputs (cost or allocative inefficiency) or using too many inputs (technical inefficiency). The contribution of each input to the level of efficiency is also identified.

The DEA technique is also used to identify appropriate referent or peer organisations that can be used to provide a model for organisations that are identified as being inefficient. The results of this analysis and the other detailed measures of efficiency have been provided, in confidence, to the participating water authorities.

However, DEA can be sensitive to inappropriate data outliers. Using high quality data is crucial to this and all other performance monitoring methods. The data used in the study is consistent between the England and Wales and Australian authorities in so far as the data definitions are identical. Particular attention was paid to collecting the data from the Australian authorities to ensure it complied with the definitions used by the UK regulator, but some problems remain.

The individual operating environments of each authority was taken into account in this study by statistically adjusting the DEA efficiency measures using a range of operating environment factors that are considered to be outside the control of the authorities. The adjustment of the DEA scores for these factors ensures that the remaining differences in performance reflects the consequences of alternative management practices.

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